Zara: Managing Supplier Capacity

How exactly does it work? Let’s say that Mango purchase a big batch of fabric, where do they store it on the ground and how and when do they ship it to the supplier?

In the case of Mango, but Zara actually works in a very similar way, they have a large warehouse of fabrics, which are bought and stored and used for their own production. In the case of fabrics that are recommended by Mango, or even bought by Mango, to be used by finished garment suppliers, in Asia, for instance, those fabrics will not come from the Mango or Zara warehouse. They will go direct to the finished supplier. In fact, most of the time, the situation is such that Mango will just request that a particular fabric be used and the finished garment supplier will go out and purchase that fabric from the fabric producer. There is no monetary exchange, on the side of Mango; there is no warehouse, there is no stock commitment from Mango. It’s done directly between the fabric supplier and the finished garment supplier.

They commit to capacity ahead of time, at the supplier?

Yes. Mango or Zara, they both operate in parallel, in the sense that, on one channel, you have the fabrics and Mango will make an estimation of what fabrics or what qualities they need to use, for which collections next season. They will go out and they will go to the fabric supplier and commit to the quantity, so that the fabric supplier is ready and has the quantity in stock. In parallel to that, they would go out to the main finished garment suppliers and let them know what quantities they can expect, in terms of production of each style. They possibly already know from which fabric supplier they will associate with that style. Especially for the more basic styles, where we are seeing big numbers in terms of production, everything is done well ahead of time, with a lot of clarification, possibly even a year in advance of when you actually need the product.

What are the biggest challenges in managing capacity with suppliers?

As I said, it’s important to have good forecasts for suppliers, in terms of the capacity that is going to be needed from them, if you are a Mango or a Zara. Obviously, there are some challenges, the principle, possibly being that, typically, the best suppliers are also the ones that are more in demand. You need to place your forecast in time. So if you are a Mango, you want to get there before a Zara gets there, because otherwise, you might find yourself without enough capacity or having to find an alternative supplier.

That’s the biggest challenge, competing against other big retailers for production space. They way you overcome that is, on the one hand, you try to make strategic alliances with the best suppliers, in the sense that, if you can, give them some forecast of what you would like to do with them for the next couple of years. That’s always very difficult.

Sometimes it’s even as simple as keeping a good line of communication open with them, to let them know if there are orders coming or how the market is moving. It’s a fine balance but the more time you have, the easier it is to do.